Court backs Chávez in row with oil giant

President Hugo Chávez scored a significant victory over Exxon Mobil yesterday when a British court lifted a $12bn (£6bn) freeze on Venezuelan assets and sided with his administration against the oil giant.

The ruling backed Venezuela's government in a row with the US multinational over an oil field in the Orinoco, a decision which could embolden other governments to get tougher with oil companies.

Authorities in Caracas celebrated when the British high court awarded legal costs against Exxon and ordered it to pay compensation for damages caused by freezing assets of Venezuela's state oil company, PDVSA. The presiding judge, Paul Walker, said the reasons for his judgment would be made public tomorrow.

Last month Exxon obtained an interim injunction freezing assets pending arbitration over the disputed oil field, a high-risk strategy which has backfired and granted a propaganda coup to Caracas.

Rafael Ramirez, the oil minister and head of PDVSA, called it a "100% victory" and vindication of the government's controversial decision last year to renegotiate contracts with private oil companies drilling for heavy crude in the Orinoco basin.

Chávez ordered the multinationals to cede a controlling share to Venezuela's state oil firm. The multinationals protested but, unwilling to abandon reserves of 300bn barrels, most bowed to his will.

Not Exxon. The world's most valuable non-government controlled oil company demanded compensation. Pending arbitration it obtained court injunctions in the US, Britain, the Netherlands and the Dutch Antilles to block PDVSA from disposing of more than $12bn in assets.

The ruling means Exxon may not be able to claw back what it claims to be owed even if it wins the arbitration, which is probably years away from resolution.

A company spokesman said Exxon had no plans to appeal and played down the ruling as having no impact on the arbitration. "We think that it's important the court did not question the merits of the underlying claim."

The firm was ordered to make an interim payment of £380,000 ($765,300) to cover legal costs within 21 days. The final bill was expected to be much higher.

Analysts said the company's gamble had failed and that it would now remain locked out of Venezuela for as long as Chávez remained in power. "For Exxon this is the worst-case scenario. It thought it could scare the government," said Pietro Pitts, a Caracas-based oil analyst and publisher of LatinPetroleum.